Environmental regulation and productivity: The case of electricity generation under the CAAA-1990*

- Each coal-fired boiler is designed to burn a particular variety of coal.
- Deviations from the targeted coal characteristics result in productivity losses.
- During the phase 1 of the ARP, most boilers switched to lower sulfur coal, others bought allowances, and a few adopted scrubbers.
- On average, productivity and output dropped between 1%-2.5%, and 1%-6%, respectively.
- The negative impact on productivity due to scrubbing was larger than that due to fuel switching.

This paper measures the impact of the 1990 Clean Air Act Amendments on coal-fired boilers' productivity and output. The Act led to generating units adopting a number of different pollution abating behaviors, one of which was an input change to lower SO2 emitting coal. A key feature of the production technology is that each boiler is designed to burn a particular variety of coal, with significant deviations from the targeted coal characteristics resulting in productivity losses. Using data for the 1985-1999 period, I present empirical evidence of the policy impact. The main findings are that productivity declined between 1% and 2.5%, on average, and output losses ranged from 1% to 6% for affected boilers, varying across regions and over time.